Will Old Navy Collapse the Way Gap Did?

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Gap Inc. (NYSE: GPS) has dumped CEO Art Peck, presumably because the retailer he presided over continued to fall apart. Its primary brands (Gap, Old Navy, and Banana Republic) have had different fates. Sales results for Gap and Banana Republic have cratered. Sales of Old Navy have been good enough so that it is expected to be spun off into its own public company. Now, its sales have been dented badly as well, which begs the question of whether it will be a good investment.

As Peck was pushed out, Gap’s board announced results for the three brands. Gap same-store sale fell 7% in the quarter that ended November 2. Its sales fell 7% in the same quarter last year. Banana Republic’s same-store sales fell 3%, compared to growth of 2% last year. Old Navy same-store sales fell 4%, after a rise of 4% in the same period last year.

It is hard to turn around poorly performing retail brands, particularly in light of the move of consumers to e-commerce. Old Navy’s same-store sales drop is a big enough slide so that its fortunes have turned quickly in a poor direction. Now, investors need to worry whether the drop will continue through the critical holiday season. If so, Old Navy has proved that it is in a tailspin of its own. It has too much retail competition to argue that there is an easy way to attack the competition again successfully. And it is hard to find a retailer that has gone from suffering a sharp drop in same-store sales to figures that are positive.

The Gap board must have believed that Old Navy would have good same-store sales ahead of the spin-off. Now, it is starting to look like J.C. Penney, which had a same-store sales dip of 6% in its last reported quarter. If the trend continues, it will threaten Old Navy’s ability to keep its current store footprint.

Old Navy was supposed to be Gap’s bright light. Instead, it has started to look like the rest of the company.


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